SOURCES OF FINANCE
If you are planning to build your home on your own there are several ways of financing a project:
- You are able to use your own savings (if so, you can probably stay in your existing home until the new one is built). Sometimes people are able to supplement their own savings by arranging an informal loan from family or friends.
- You sell your current house to raise the finance you need, or use your existing property as surety for a loan to fund the new house. If you have to sell your current home you might then live in a caravan on site, or with relatives, or rent a house while the new home is built.
- You borrow the money you need by taking out a mortgage on your proposed self build home. Usually you can only borrow about 75% of the land cost, and 60% of the build cost, so you will still need a sizeable deposit. Our MEMBERS DIRECTORY lists financial/mortgage providers.
You need to assess your situation and work out which method or combination of methods will work best for you.
An up-to-date list of self build mortgage providers can be found here: list of self build mortgage suppliers.
Community-led housing schemes are eligible for grants towards some professional fees. Locality has more information.
Some of the bigger lending institutions may also be worth approaching, though in the current economic climate; it’s very difficult to get finance for group self build schemes.
Budgeting can make or break a project. The more accurate your estimates, and calculations, the more likely you will build your dream home without any crippling over spends. See our BUDGET ADVICE page for things to keep in mind.
labour is zero rated, and the VAT on materials used in the build can be reclaimed on a new build property. VAT is still payable on services such as architectural fees, scaffolding and plant hire etc but cannot be reclaimed.
New build homes are zero rated for labour under VAT notice 431(NB), so you should not pay any VAT on labour regardless of whether your trades or builder are VAT registered or not. There is a slight difference when it comes to conversions where there will be a 5% VAT rate applied to labour when you use a VAT registered builder and reclaim under VAT notice 431(C).
You do not need to provide any evidence that you are a self builder to your contractor for them to zero rate the labour element, but you do need to keep an eye on any invoices to make sure you have not inadvertently been charged VAT on labour. If you have, then you will need to challenge the builder and reclaim it from them not the taxman because it will not have been due to HMRC in the first place.
Keep the originals of all of your VAT invoices and receipts as you will need these when you make your VAT reclaim; copies are not allowed. Any receipts for individual items over £100 need to include your address, or the site address so a till receipt will not suffice for these items. Remember that you can only recalim for materials used in the construction of the property, not for professional services like architectural fees, plant hire or surveys etc. Landscaping costs can be reclaimed, but only if they have been specifically appoved by your local planning authority as part of a formal landscaping plan. The HMRC website has more information on what can and can’t be reclaimed.
Self Build projects are eligible for VAT exemption, but they must create a new dwelling, that is for you to use as your own home. There are other conditions for different types of projects, and if you are eligible you need to follow the process for claiming the VAT back AFTER you’ve paid it. Consequently, you need to obtain VAT invoices and keep precise records to ensure your claim is accurate. You can only submit one claim.
Buying building materials
- Most selfbuilders are able to either pay no VAT or to reclaim much of the VAT that they pay for materials. HMRC has forms you can download for up-to-date information on VAT and selfbuild. Notice 431NB for newbuilds, 431C for conversions. There is also more information at this site.
But the rules are complex and not everyone can reclaim VAT.
- If you are extending or renovating an existing house, you must pay VAT at 20%.
- Creating a separate building or annexe doesn’t count as new build: VAT is 20%.
- Building holiday lets or a building to rent counts as a business use and VAT is due at 20%.
- Converting a non-domestic building into a home counts as new build: see notice 431C
- There is an intermediate rate of VAT (5%) which applies to some works, for instance turning a house into flats, or flats into a house, or for work on a house unoccupied for more than two years. But the work cannot be done on a selfbuild basis — you have to employ a VAT registered contractor.
- Listed buildings have some very complex VAT rules — refer to HMRC.
If you are eligible to reclaim VAT, then you have to keep very good records as you have to present your original VAT invoices at the end of the job. Generally, labour only and supply and fix invoices should be VAT free on new builds, but different rules apply on conversions.
The Government has confirmed that self builders (and the clients of custom builders) will be exempt from paying the Community Infrastructure Levy (CIL) that is normally charged when planning permission is granted for a new house. But you must follow process, and it is time sensitive. It has also confirmed plans to exempt self builders from paying Section 106 (S106) Affordable Housing Contributions, although this has been challenged and seems to be in a constant state of flux.
More detail on these topics is available on our dedicated CIL/S106 EXEMPTIONS page.